LATEST THINKING

Utilities at a crossroads

Electric utilities can die in the past, or conquer the future

OVERVIEW

The rise of self-generating and other energy efficiency technologies is making it easier for customers to manage their consumption and get their power elsewhere—and at a lower cost—or produce their own.

Utilities in Europe and Asia are using cost transformation as one of the means to combat disruption. In North America, utilities have been investing at a rate of 2x to 3x depreciation over the past five years, pushing customer rates higher in an industry with dismal growth.

There is a powerful opportunity for utilities to use cost management and technology innovation to improve margins and fuel growth.

KEY FINDINGS

Over the last decade, US utilities have made substantial investments ($350B in 2016), with the 30 largest US utilities seeing capital investments exceed depreciation by 2.4x. However, those investments have not translated into operational efficiency. Cost optimization is the only controllable source to free up cash that could be allocated to growth.

Utilities customers want solutions that address their issues and need for clean, affordable energy. New entrants are rushing into the market to fulfil customer needs by offering better service, more transparency in rates, energy efficiency recommendations and a wider array of products at costs 10-30 percent lower.

Furthermore, current business models are not sustainable. Large utilities can partner with smaller, more nimble companies to survive in the new and be more relevant by delivering the new products and services that customers are seeking.

RECOMMENDATIONS

Utilities must take the right steps at this crossroad:

Build a cost DNA
Having an enterprise-wide cost-conscious mindset can be fuel for growth. New entrants and private equity firms are using zero-based mindsets and other cost-optimization methods.